Honeymoon for firms over

Shakeman Mugari

MOST listed companies will this year not match the super profits they grossed last year due to the impact of the new monetary policy announced in December.



=”Verdana, Arial, Helvetica, sans-serif”>A clampdown on the parallel market, coupled with the risk now associated with speculative dealings, are some of the events that could take the glitter off this year’s results.

For banks the non-interest income which provided a major boost to their results last year could be drastically slashed owing to the tight controls instituted by the Reserve Bank of Zimbabwe (RBZ).

The central bank said it would also keep a watchful eye on the foreign currency departments of the financial houses that were accused of trading on the parallel market. The days of extraordinary results seem to have come to an end.

Most companies have already begun warning their shareholders and market of possible profit cuts in the upcoming reporting season. A dozen cautionary statements issued in the last three weeks point towards significant slump in the earnings of most listed firms.

So far PG Industries, paper making firm Art Corporation and horticultural concern Interfresh, have warned that their earnings are likely to be significantly lower than last year. There are other companies that are obviously suffering in silence.

The current sombre mood that has gripped the stock exchange is in stark contrast to the optimism, pomp and fanfare that prevailed on the same market last year.

Only last year some chief executives confidently boasted that their profit levels for the next reporting season would rise to record highs.

Other companies would warn the market not of a pending loss, but of a whopping profit in the offing and shocking earnings per share. There were others that would venture into non-core business in a bid to boost earnings.

Some financial institutions went on a spending spree, buying fixed assets supposedly to hedge against inflation.

It later emerged that foreign currency dealing contributed significantly to their super profits.

Then came the monetary policy statement in December last year.

Interest rates shot through the roof leaving over-borrowed companies scurrying for cover. The sudden change in the landscape of the financial services sector impacted negatively on most companies.

The sudden downturn in the market conditions has made their prospects gloomy. Though it is too early to say, this might probably signify the end of last year’s super profits that used to startle even the company executives themselves. Those days are gone.

This year, market watchers say, belongs to moderate results that are characterised by cautious trading and proper risk management.

The inception of the monetary policy has seen a change in the fortunes of most exporting companies on the Zimbabwe Stock Exchange (ZSE). Some have already begun lobbying for a further slash in the value of the already fragile Zimbabwean dollar.

Century Holdings Ltd group economist Moses Chundu said banks are headed for tougher times.

“There are less options for the banks to more money. The non-core income has been cut significantly,” he said.

The non-core income for banks also included dealings in foreign currency.

“The situation was worsened by the strict controls on the interest income that has been introduced by the central bank. It will also take time before the banks recover from the December-January effect,” Chundu said.

This year, according to economic analysts, promises waning fortunes for exporting companies that had last year turned themselves into blue chip counters on the ZSE owing to their impressive performance.

The ZSE, led by Emmanuel Munyukwi, last year shattered records especially on the industrial index front.

Exporting companies could however experience a drastic knock on their margins.

Zimbabwe Financial Holdings Ltd principal economist Best Doroh said exporter’s margins were likely to be under pressure. He said although exporters were accessing foreign currency on the auction floor, their viability was still threatened by the surrender requirements to the RBZ.

“This year is likely to be difficult for the exporters. The $824:US$1 will still continue to affect the exporter’s viability,” said Doroh.

Dairibord Zimbabwe Ltd has become a high profile victim of the blend rate. The company has since confirmed that it is facing serious problems especially in maintaining viability on the export market. DZL is led by Antony Mandiwanza.

“We will see moderate results,” Doroh said. “The earnings momentum has been reduced drastically.”

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